By James Langton

(April 17 – 10:10 ET) – As expected, the Bank of Canada has lowered the bank rate by 25 basis points to 5%.

The central bank noted that it is making this move to combat the slowing that has been biting the Canadian economy since late 2000.

The modest 25 bps move indicates that the bank does not see major trauma ahead for the economy just yet. Some economists suggested a 50 bps move was in the cards. But the bank says the slowing is in line with its expectations. “The slowdown has largely been a consequence of the marked easing in the pace of U.S. economic growth, while final domestic demand has maintained its underlying momentum.”

The central bank sees the slowdown easing inflationary pressure. “Overall, the Canadian economy is expected to be operating somewhat below capacity by the middle of 2001, putting downward pressure on inflation. Core inflation, currently 2%, is thus expected to ease. The rate of increase in the total CPI, currently close to 3%, is expected to move down to 2% by the end of 2001.” The bank says that today’s cut is intended to stimulate demand and keep inflation around 2%.

The bank says it continues to see a second half rebound. “It remains the bank’s view that, following the slowdown in the first half of this year, Canada’s economic growth will strengthen in the second half and in 2002. This expected pickup reflects a number of factors, including completion of the current inventory adjustment, continuing investment in new technology, recent tax cuts, the easing in domestic monetary conditions and, most importantly, the resumption of stronger U.S. economic growth.”

The central bank also signals that this 25 bps is not necessarily the end of the cutting. “Given the uncertainties related to the timing and strength of the U.S. rebound, the Bank will continue to monitor developments closely.”

The bank’s views on the economy and the outlook for inflation will be set out in the Monetary Policy Report to be published on May 1. The next scheduled rate announcement is May 29.